Thursday, November 12, 2009

The essence and future of TX vs. CA

I know there have been a lot of articles and references to Texas vs. California recently in this blog, but, well, there's a new one with some genuinely new contributions to the argument ("America's Future: California vs. Texas", Trends magazine, hat tip to Jeff). And it says some nice things about Houston too, so how can I pass on it? The beginning of the article is here - including an overview of both states' situations - but here are some key additional excerpts:

...Both the Brookings Institution and Forbes Magazine studied America’s cities and rated them for how well they create new jobs. All of America’s top five job-creating cities were in Texas. It's more than purely economics and regulation can explain, though. Texas – and Houston in particular – has a broad mix of Hispanics, whites, Asians, and blacks with virtually no racial problems. Texas welcomes new people and exemplifies genuine tolerance. When Hurricane Katrina hit, Houston took in 100,000 people. Not surprisingly, Houston has more foreign consulates than any American city other than New York and Los Angeles....But, how did this happen? What’s wrong with California, and what’s right with Texas? It really comes down to four fundamental differences in the value systems embodied in these states:

First, Texans on average believe in laissez-faire markets with an emphasis on individual responsibility. Since the '80s, California’s policy-makers have favored central planning solutions and a reliance on a government social safety net. This unrelenting commitment to big government has led to a huge tax burden and triggered a mass exodus of jobs. The Trends Editors examined the resulting migration in “Voting with Our Feet,” in the April 2008 issue of Trends.

Second, Californians have largely treated environmentalism as a “religious sacrament” rather than as one component among many in maximizing people's quality of life. As we explained in “The Road Ahead for Housing,” in the June 2009 issue of Trends, environmentally-based land-use restriction centered in California played a huge role in inflating the recent housing bubble. Similarly, an unwillingness to manage ecology proactively for man’s benefit has been behind the recent epidemic of wildfires.

Third, California has placed “ethnic diversity” above “assimilation,” while Texas has done the opposite. “Identity politics” has created psychological ghettos that have prevented many of California’s diverse ethnic groups and subcultures from integrating fully into the mainstream. Texas, on the other hand, has proactively encouraged all the state’s residents to join the mainstream.

Fourth, beyond taxes, diversity, and the environment, Texas has focused on streamlining the regulatory and litigation burden on its residents. Meanwhile, California’s government has attempted to use regulation and litigation to transfer wealth from its creators to various special-interest constituencies.

They go on to make six forecasts:

...expect to see California’s loss of jobs to Nevada accelerate...

...expect to see a backlash in California and across the country against regulations, especially green initiatives that can’t clearly demonstrate a positive ROI...

Watch for the smart money, including venture capital, to begin migrating to Texas for start-ups in many areas, including energy, info-tech, manufacturing, and biotech. Just as Delaware’s tax laws once encouraged numerous businesses to incorporate there, even when they had no connection to the state, Texas will become a magnet for new businesses by offering cheap land, a favorable regulatory environment, a business-friendly culture, and a large supply of skilled labor. Unless California revamps dramatically, expect to see its economy languish, even as the recovery takes off.

To make its business climate even more business-friendly, Texas will invest heavily in secondary education and work hard to attract the best talent to its research universities (note the recent Tier 1 proposition and funding). Keep an eye especially on the University of Texas, which already has a first-rate campus and faculty. Within 10 years, UT, as the locals call it, may well rival Stanford or Berkeley.

Other states will adopt tort reform measures pioneered in Texas. Unlike California and most other states, Texas has been aggressive in minimizing the enormous burden of frivolous lawsuits...

Look to Texas to become a cutting-edge cultural mecca. Houston has always offered a vibrant cultural scene, ever since the Alley theater company was founded there in 1947 by Nina Eloise Whittington Vance. In the 1950s, John and Dominique de Menil moved to Houston with one of the most significant private collections of art in the world and began donating art and money to the Houston Museum of Fine Arts. Both institutions have grown to world-class status since then. In the coming years, this trend will spread to the major cities of Texas (take that, Dallas!), attracting the best talent and money and shifting the cultural balance of the nation away from New York and San Francisco.

I can personally vouch for #5. I was just visiting my brother out in CA, and a friend of his with a small store was being hit with a large disability discrimination lawsuit for a minor oversight (handicapped parking was marked on the ground and had the requisite walkways and ramps, but lacked a pole sign). Evidently this has become a cottage industry in California, where lawyers guide the disabled through stores looking for very minor violations of a vague law (things like high shelves or tables), then sue (expecting a quick settlement, of course). Under CA law, discrimination guilt is assumed if there's anything in the store the disabled can't do that a normal customer can do, regardless of the availability of employees to provide assistance. His friend was clearly exasperated with the unwinnable situation. Just plain nuts.

35 Comments:

They expect California to lose jobs to Nevada? Well, I guess it's understandable. Nevada has so little employment right now its jobs numbers have nowhere to go but up. I mean, I get bashing California, but shouldn't they at least mention that Nevada is doing worse on all metrics?

And the correct comparison between good race relations and bad race relations isn't just California versus Texas; it's Houston, Miami, and New York on the one hand, and Los Angeles and Phoenix on the other. I'm not sure about Houston, but with New York and Miami, the immigrant populations have a much larger middle-class contingent than in the Southwest. This makes it politically difficult to sell nativism. Phoenix in particular is similar to 1950s' Birmingham both in its demographics (just one minority, with little political empowerment) and in its race relations (Sheriff Joe Arpaio is this generation's Bull Connor).

I would like to see a little more logic and flow of thought as to why Texas will become a cultural mecca. Do they mean we will have lots of different people from other cultures living here or will our cities become more "cultural" via the arts? At least the portion you quoted seemed to talk about the arts. Just because we're pro business etc doesn't necessarily mean we'll become a cultural mecca.

Also, even though California is anti business, I can't seem to make myself believe that they'll ever really become irrelevant. Not that the article says that, but no matter what, people, not necessarily business owners will want to live in the temperate California weather...it will always be the main draw.

I think they meant TX will become more of a cultural arts mecca. Not that the coasts will decline, but relatively speaking TX will get a lot closer to their level. Joel Kotkin, global city historian, pointed out to me once that the arts always follow the money. That's their patronage. Wherever wealth is generated, inevitably the arts follow.

I agree CA will always be popular on a certain level, but it may become more like NYC, Boston, and Chicago - highly regarded, but not really growing all that much, and not the hotbed of in-migration it used to be.

Tory and Joe has a good point of arts following money. It's a story that has occurred throughout history.

Our pro-business stance mean more wealth base which is needed to support the arts. How else do you thing we have a theatre district and a museum district. Our theatre district is second only to New York in the number of seats available. None of this would have materialized without donations from local businesses.

"I agree CA will always be popular on a certain level, but it may become more like NYC, Boston, and Chicago - highly regarded, but not really growing all that much, and not the hotbed of in-migration it used to be."

So to me, the question is, are they at their pinnacle because of they've reached their max potential or because regulation and/or demand simply won't allow it anymore? Would it be beneficial for them to grow more?

And also, if the arts simply follow the money, is it really something to boast about if it's just b/c of numbers instead of being proud of it b/c the "people" made it?

It's sort of how so many great athletes come out of Texas, Cali and Florida. It's not rocket science, we just have more people. To me, it's not much to be proud of.

Actually, if you look at per capita economic growth rather than population growth, then the Bay Area is the fastest growing part of the country; New York, Boston, Washington, and Houston are also fast-growing, while Philadelphia and Miami have grown slightly faster than the rest of the country. All other major cities have either fallen behind or broken even.

The rule seems to be that the growers of the last 10 years are the cities centered around oil, and the cities centered entirely around the new post-industrial economy. This covers the period 1997-2007; there's no data after 2007, and it would be interesting to see whether the California meltdown crashes incomes in the Bay Area, whether the financial crisis crashes incomes in New York, and whether the oil price fall crashes incomes in Houston.

I think they allowed their negatives to grow until they matched, or maybe even exceeded, the positives. That stopped their growth. If they reduced their negatives, they would grow again. And studies show larger population centers generate more wealth/productivity per capita - so, yes, they would benefit.

If you work hard, succeed, get wealthy, and then support significant arts or charities, should you be proud? I would think so. Same applies to larger groups like states.

I'm not a fan of per capita economic growth as a stat (even if Houston does well). In too many cases, it just signals places that drove out the poor "unproductives" through cost-of-living (esp. housing) increases, usually through intentional supply restrictions. It's a game of "hot potato" where cities compete to push off the poor and lower middle class on to other cities or even states. The overall economic pie does not improve in these cases, and I would argue it's probably actually a net loss from the costs of the dislocation, not to mention the higher burden on those that stay behind.

Tory, the numbers I'm using are for metro areas, which include boomburbs located 100 miles away from Manhattan or the Loop. The areas that the developers banish the poor to are much closer in: many are located on the outer fringes of the city proper, or at most in the inner-ring suburbs. In New York, the South Bronx is expanding northward, whereas Harlem is contracting northward - essentially, the ghetto is moving outward.

The entire metro areas of NYC, Boston, DC, and most of CA have very expensive housing. It's not that the poor don't exist (as you point out), but many middle and lower middle class (who have more means to move) get frustrated and just leave, usually moving to the South, or, in CA's case, further east to AZ or NV (or TX). Long-timers aren't so much frustrated as cashing out on their housing good fortune and retiring somewhere cheaper on the winnings. But the family that buys their house and replaces them in the stats is almost certainly higher income. Voila, per capita numbers improve.

No, those frustrated people mostly move further out to the exurbs - there are plenty of cheap exurbs in Northern Virginia, the Poconos, central Massachusetts, and the Central Valley. The only one of those regions that's not included in the city's CSA is the Central Valley, but even if you include it, the Bay Area is one of the fastest growing regions of the US.

Besides, all of those cities, especially New York, get a lot of immigration from poorer countries. So do Miami and Los Angeles, which have slower but still above-average growth. If it were the other way around and the Sunbelt had high per capita growth rates and the coastal cities didn't, local boosters could just as well use immigration as an excuse.

I think the census domestic in- and out-migration stats (by state) tell a different story. As do the now-famous one-way U-haul prices, which have substantial differences depending on the direction you're going (more to the South and TX; super-cheap to CA, the Midwest, or the Northeast).

It's pretty simple logic to say that, if housing supply is restricted, and prices shoot up, over time - as houses are sold and re-bought - the average income (and therefore gdp per capita) of the residents must move up, because they're the only ones that can afford the houses.

What a great post, one that has elicited many thoughts plus much insightful commentary, and what a great blog. I for one recall Greenspan explaining the housing market in around 1999/2000 and using the analogy of a glass filled with champagne; the whole market would never collapse because, as one bubble rises to the top and pops, another and another yet will follow…and I thought to myself, “What happens when the champagne goes flat?”

In any case and however, I still have found no what I would term to be “sincere” quantifiable proof for your second point, i.e. that “environmentally-based land-use restrictions centered in California played a huge role in inflating the recent housing bubble,” even after reading “The Road Ahead for Housing” several times as well as considering many analyses (most of which are unfortunately based solely upon research performed by Wendell Cox and Thomas Sowell [who tend to first come up with a conclusion and then do anything to prove that conclusion] for such hyper-opinionated/outright biased entities as the Heritage Foundation and the Reason Foundation). They ignore or gloss over the banking industry’s profligate and avaricious lending strategies for increasingly risky real estate ventures (furthermore the insurance industry helped subsidize the bubble too, as reflected by the fact that most of those developments in California that were ravaged by wildfires should never have been built there in the first place, much like those developments on the Gulf Coast that were literally built upon foundations of sand) which, at this point, is leading me to assume that this conclusion results more from a pre-existing ideological point of view.

For example the Austin MSA, which has embraced so-called Smart Growth since the early 1990s and has quite restrictive land-use regulations especially when compared to the rest of Texas, ranks consistently higher than Houston in all these Brookings-type studies. Am I missing something? Would you please point me in the direction so that this assumption of mine can be challenged if not ultimately reversed? It would be greatly appreciated for, as the facts change, my mind changes.

Regarding the “unwillingness to manage ecology proactively for man’s benefit has been behind the recent epidemic of wildfires:” this is not a recent phenomenon by any means. Interfering with fire’s natural course began with McKinley and was expedited by Teddy Roosevelt. The recent spate of wildfires must be blamed on the accumulated mismanagement of over a century.

Oh! And another thing! In a sense “The Road Ahead for Housing” is warning us to keep an eye on an increase in foreclosures. Why has the foreclosure rate throughout Texas in general and Houston in particular begun to spike in recent months? Nobody I’ve heretofore asked knows why. Here are some of the results from the research I have been cobbling together:

•The foreclosure rates in several states were very significant. For example, the foreclosure rates in Arizona were up 36.1% for September. Florida was not far behind with a 29.67% increase, followed by: 24.38% in Texas; 18.22% in Michigan; and 15.57% in California•The major increases were driven mainly by changes in urban areas. In Arizona, the statewide increase was pushed by a massive 81.37% increase in Phoenix. Other cities with big increases included: Las Vegas, NV at 47.47%; Atlanta, GA at 39.96%; Chicago, IL at 36.27%; and Houston, TX at 33.29%

David, it's not just that foreclosure rates are higher in Arizona. It's that they're correlates with smaller government, not bigger government. Kaiser has a database online, State Health Facts, which lists states by such metrics as per capita state taxes, per capita spending in state, unemployment, and stress tests including foreclosure, increase in unemployment, and increase in food stamp participation.

This gives a matrix of 2 by 4 entries - on one side you have the input variables of taxes and spending, and on the other you have unemployment and the three stress tests. And on all eight, bigger government is correlated with less stress. One correlation coefficient out of eight is statistically significant, whereas the other seven are almost significant.

There were a lot of variables that went into the housing bubble. Smart growth housing restrictions were a big driver that particularly hit the West. But loose credit was also a big driver, and a national one that hit Texas just as well, which is why we still have plenty of foreclosures. We just haven't had the value-collapses of elsewhere.

To respond to your point on Austin: These are metros, not cities. In Texas, counties outside of cities have very limited land-use controls, and certainly nothing like smart growth. Even Austin only controls a limited core area of the metro. In addition, even cities like Austin and San Antonio that tightly control their core tend to be much looser outside of it.

Don't confuse New Urbanist, dense, mixed-use projects (which are successful all over Texas in our relatively free development market) with 'Smart Growth' (tight controls on overall development and a broad forcing of density and transit), which is pretty much non-existent in Texas outside of Austin's city limits.

Smart growth housing restrictions were a big driver that particularly hit the West.

Wendell Cox keeps repeating that lie until it becomes truth. There were no smart growth restrictions in Phoenix, Las Vegas, or the Inland Empire. Where there was the most smart growth - New York, Chicago, Boston, Philadelphia - there was little bubble and not much crash.

It's telling that in a country with thousands of partisan pundits ready to blame every problem on their opponents, the only person who came up with the "Smart growth caused the bubble" meme isn't even a partisan Republican, but just a guy who lobbies for less density and more highway construction.

I'm talking about SF Bay Area, LA, Orange County, San Diego, and even, to some extent, the Inland Empire because of CA state laws. Vegas was restricted by federal govt ownership of land around the city. Phoenix did not technically have smart growth, but was slow permitting land to developers as fast as demand was rising, so a bubble happened there too. On top of all of this was easy financial credit, which made it way too easy for people to qualify for loans they couldn't afford. And a lot more took advantage of it in the West because home prices were going up so fast (due to restricted supply) and they wanted to get in on the action. Here in TX, people did get caught in the credit bubble, but not nearly as many because there wasn't a mint to be made in flipping property here like there was there.

I myself live in Central Texas. And I've been talking with economic development directors for small towns that are within a thirty minute radius of Austin in order to determine how many "traditional," ie most decidedly non so-called "Smart Growth" developments that have already been platted but have gone under because of the housing market...I'm up to 19.

The most urban areas of coastal California didn't have much of a bubble, or a crash. I think it was Ed Glaeser who noted earlier this year how while Bay Area home prices were down 30%, SF home prices were down 5%; across the country, smart growth developments have held their prices better.

There is a difference between saying that the Inland Empire and Las Vegas had some growth restrictions and calling them cases of smart growth. The exurbs in the desert cities grew 50% or more in this decade. Federal land ownership couldn't prevent Nye County from growing as fast as Fort Bend County, and couldn't prevent Pinal County from growing even faster, nearly doubling its population since 2000. If there were government restrictions, they weren't effective.

The only real growth restriction in the desert cities was in LA and came from the San Gabriel Mountains; similarly, the only real growth restriction in Florida was the Everglades. Those are natural boundaries, which are nothing like the urban growth boundaries of Oregon, or the lack of space in Chicago and on the East Coast.

Seattle is doing moderately well, although Boeing's decision to shift some 787 production to SC doesn't bode too well long term. WA is too pro-union and business-unfriendly, and Boeing has said so. They may ultimately shift 100K+ high-paying jobs out of WA.

Regarding Boeing moving out of Seattle: This is round two; round one is when Boeing moved its corporate offices to Chicago. In any case, so what you’re saying is that Washington State should become more like Texas?

http://www.americashealthrankings.org/yearcompare/2008/2009/WA.aspx

http://www.americashealthrankings.org/yearcompare/2008/2009/TX.aspx

http://www.chron.com/disp/story.mpl/health/6725977.html

Have you actually ever read Adam Smith? Particularly: "The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it [. . .] Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate" and "[the capitalist class], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

The health care industry is set up along the lines of the “broken windows effect”: http://www.reference.com/browse/wiki/Parable_of_the_broken_windowin that, if are getting sick and you have healthcare, you go to the doctor, which costs say $1. And if you are getting sick and you don’t have healthcare, you wait until you are so sick that you must go to the emergency room, which costs $10…this may be good for the healthcare industry, but it’s not so good for the general populace...for further example, in the GDP based economy of ours, the individual with the greatest multiplier effect on our economy is a woman who's going through a divorce while also being treated for breast cancer.

Portland doesn't do that much smart growth, in terms of outcomes. It's trying, with its urban growth boundary, but it's not building light rail competently, and its density remains low. Much of the sentiment on the entire West Coast isn't smart growth, but no growth. Portland is bad there; the Bay Area is even worse.

slightly off topic from the trending comment section, but just wondering what you thought of the recent election with its attendent mercurial constitutional amendments (even with the help of League of Women Voters)? Coming from cali where there were boatloads of referendums every election, it kind of bothers me.

Maybe Texas won't spend/tax cut itself into a corner like Cali, but I think when you have a strong economy (especially relative to the rest of the nation), hubris wants to do exactly that.

I agree with you completely about the "no growth" folks in the Bay Area. Instead of letting density happen where you need it, they force people to live an hour outside of city centers and commute!

I've always believed that it may be a responsible thing to restrict either outward growth or building density, but to do both (as most zoning depts do) is absolutely disastrous on the region at large even if it artifically inflates housing prices.

I thought most of the propositions were pretty reasonable. I'm not sure about voter referendums. They have caused havoc in CA. But they're also a good way to fix things that can't get through the legislature because of powerful lobbying interests. Tough call.

Yes, I agree that all the propositions seemed pretty reasonable, but that's the problem, there are hundreds of reasonable propositions and when you combine them all together one can end up with a government (legislature and governor) that has little discretionary ability to control spending. My proposition philosophy has been, we hire these yahoos to govern, so let them govern. That said, I did vote for a couple "conceptual" referendums (like the state guard paradox) but I pretty much went "no" otherwise....in spite of my liberal inclination of always increasing education spending.

Admittedly I think THE major problem in California is the fact it takes simple majority to approve an increase in spending and a super majority to approve an increase in taxes. Not even Texas could cut through a gordian knot like that.

Another problem in California is that the budget process is such that you need a 2/3 majority to pass a budget. The state has among the most conservative Republican delegations in the country, which controls more than 1/3 of the seats, which ensures that the government will go bankrupt before it raises taxes. That leaves spending cuts, but about 75% of state spending is mandated by the initiative process. It's a lot easier to pile up mandated spending proposition by proposition than to repeal everything together.

And, of course, the fact that the state pays about $15 billion more in federal taxes than it gets back in federal spending doesn't help.

Tory:"Seattle is doing moderately well, although Boeing's decision to shift some 787 production to SC doesn't bode too well long term. WA is too pro-union and business-unfriendly, and Boeing has said so. They may ultimately shift 100K+ high-paying jobs out of WA."

Seattle and the state of Washington is regarded as having very good individual and business tax rates, if not some of the best in the country.

The only reason Boeing left the Seattle area was because SC gave them a free 150 million dollar grant and 450 million in total incentives.

That ain't no free-market competition, that's an outright corporate handout from state government. Yes, I do agree unions were apart of the decision.

About Me

Social Systems Architect and entrepreneur with a genuine love of my hometown. I cover a wide range of topics in this blog - including transportation, transit, economic development, quality-of-life, city identity, and development and land-use regulations - and have published numerous Houston Chronicle op-eds on these topics. I'm a Founding Senior Fellow with the Center for Opportunity Urbanism and co-authored the original study with noted urbanist Joel Kotkin and others, creating a city philosophy around upward social mobility for all citizens as an alternative to the popular smart growth, new urbanism, and creative class movements. I am a native Houstonian, 6th-generation Texan, attended Rice University for my BSEE and MBA, and a former McKinsey consultant and adjunct faculty member with Leadership Houston. I am currently the founder of Coached Schooling, pioneering a transformational new approach for a more effective and engaging 21st-century K-12 education combining the best elements of eLearning, home and traditional schooling. CONTACT EMAIL: tgattis (at) pdq.net - send me an email if you would like to receive these posts via email, or see the Google Groups signup box below.